Fiat currency is dying a natural death — its logical replacement is a digital voucher system pegged to labour time

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(Updated on 7 May 2025.)

British pound sterling has lost more than 99.5% of its purchasing power since 1750, the start of the Industrial Revolution. The US dollar, the global reserve currency, has lost 97% since the start of WWI; or 95% since the end of WWII, when the US supplanted Britain as the world’s imperialist superpower. The figure from the inflection point of 1968, around the time when capitalism started sinking into its first serious postwar global contraction, is 90%. That means a 2025 dollar is the equivalent of worth 10 cents in 1968. More significantly, the average inflation rate of the US dollar since 1968 has been 3.97%, up from 3.17% since 1914 or 2.14% since 1850.

Inflation and devaluation are two sides of the same greenback. Right-wing libertarians claim the crisis stems from the creation of the central bank in 1913 and the cancellation of the gold standard. That doesn’t explain banking and economic crises that preceded the end of the gold standard or 1913 — the first national US banking crisis struck in 1907, inspiring the creation of the central bank. The gold standard became a fetter on productive expansion by limiting the number of dollars that could be printed and invested.

The main driving force behind the process and its accelerating tendency is capitalism or capital accumulation per se — self-expanding value through the expansion, innovation and acceleration of commodity production. Make the same number of commodities in less time than before, and, all else being equal, their exchange/monetary value falls.

Money, the universal equivalent commodity that enables or mediates the exchange of commodities of differing value, is therefore also devalued by the productivity gains that capitalism depends on (since devaluation manifests in economic contraction and therefore has to be offset by making and selling more commodities in less time). As the number of commodities in circulation rises along with the number of transactions, so too does the money supply.

The automation revolution is exacerbating the process not only because it speeds up production time and capacity but because it is abolishing the source of (monetary/exchange) value and profit — the commodification of labour time. The less time needed to produce a commodity, the less labour time, exchange value and profit it contains. With the global economy increasingly dependent on automated production and commodified data — with hardly any labour time per unit of data required, especially with instantly replicated data — the amount of exchange value contained in each commodity is approaching zero.

Global reserve currency

Other factors, of course, are contributing the the decline of the pound and the dollar, mainly capitalist competition — although that is inherent to capitalism, too, and tends to intensify as profit rates dwindle and fewer capitalists (at least relative to total capital) are left to fight it out over what remains.

With US capitalism increasingly faltering due to its highly automated productivity, the US is increasingly dependent on parasitic practices that drain value out and away from the rest of the world. Anyone resisting risks being subjected to US sanctions, denying them the use of the dollar — and again forcing them to look for alternatives to the dollar. Sanctions on Russia after its 2022 invasion of Ukraine reinforced the trend and Trump is upping the ante by implementing high tariffs (import taxes), with the aim of forcing trading partners to lower their tariffs on US imports. Trump’s administration does want a recession to devalue capital and partially devalue of the dollar, to make the latter more competitive, but of course not to the extent that the US dollar loses its dominant status (in the present conditions, an extremely tricky balancing act).

Since the end of WWII, the US has been the world’s dominant reserve currency and most global trade is conducted using the US dollar. Rising demand for the US dollar appreciates its value, but also makes it increasingly expensive to acquire, incentivising moves to: trade without the dollar; find bonds to buy that are cheaper than US Treasuries (debt); and stock up on hard assets, especially gold.

China, previously the highest buyer of US debt, has been diversifying its foreign reserves, and has reduced its holdings in US bonds from $1.3 trillion in late 2013 to below $760bn in January 2025. Russia and even Saudi Arabia, India and Turkey have also been diversifying. In the first quarter of 2020, the dollar’s share of trade between Russia and China fell below 50% for the first time on record — down from 90% in 2015. In 2023 the figure reached 39%.

Even JP Morgan, the US’s biggest bank, told its clients in August 2019 to sell the dollar. In 2024 the bank said:

Some signs of de-dollarization are evident in the commodities space, where energy transactions are increasingly priced in non-USD currencies. For example, Russian oil products exported eastward and southward are being sold in the local currencies of buyers, or in currencies of countries that Russia perceives as friendly. Elsewhere, India, China and Turkey are all either using or seeking alternatives to the greenback.

In addition, central banks, especially those in emerging markets (EM), are increasing their gold holdings in a bid to diversify away from a USD-centric financial system. Central banks collectively bought a net 1,136 tonnes of gold in 2022, the highest annual demand on record, and another 1,037 tonnes in 2023. This reduces their need for precautionary reserves of U.S. dollars and U.S. Treasuries, which in turn frees up capital to be deployed in growth-boosting domestic projects.

Hyperinflation?

The purpose of this article, however, is not to discuss the possibilities of a new currency emerging to displace the US dollar as the main global reserve currency. A new one would not last as long as the dollar has — Chinese Renminbi has also lost 79% its value since 1987, when China had started to privatise large swathes of its then more-or-less fully socialist economy in order to ease US tightening sanctions that strangled its development. (The crisis of US capitalism increasingly compelled it to privatise any form of public property, compelling it to intensify its attacks on the socialist bloc.)

If productivity growth and innovation are to continue, as has been the tendency throughout human history, then we must move beyond money and therefore capitalism.

Overcoming each recession compels capital to seek mergers and acquisitions. (The volume of deals greater than $1bn in value increased by 17% in 2024, and their average value rose.) Around half of US banks and publicly-listed companies have disappeared since the turn of the century and the average lifespan of S&P 500 companies, the richest in the US, fell from around 60 in the 1960s to below 20 in the 2010s. US capitalism is in a death spiral and a ‘final merger’ is becoming an economic necessity for the first time — entailing public ownership of the economy, since no exchange of ownership — and no money, therefore — is necessary in a total monopoly.

Amid the falling creation of real new value in commodity production, capital is becoming increasingly dependent on the state to sustain the ever-greater, steepening demands of accumulation. (See rising fossil fuel subsidies, for example.) ‘State monopoly capitalism’ is therefore evolving towards and demanding a revolutionary transition into a ‘state monopoly socialism’.

As of 29 February 2020, the Fed held $2.47 trillion, 14.6%, of $16.9 trillion marketable US Treasury securities outstanding, making it by far the largest single holder of US Treasuries in the world. By the end of March, this increased by an unprecedented monthly $650bn, to $3.12 trillion. One estimate said that if this pace of buying continued, the Fed would “own the entire Treasury market in about 22 months”. As of 23 November, 21% of all US dollars had been printed in 2020, taking the figure to 75% in 12 years — already sparking fears about possible hyperinflation.

Indeed, the highest bout of inflation in 40 years followed. A basket of groceries that cost $100 in November 2020 now costs $126.

Anyone who believed the explosion in the money supply was a temporary consequence of the Covid-19 pandemic was sorely mistaken. Like now, as was the case in 2019, the US has reached the point whereby accumulation, amid rising unprofitable/surplus capital, needs a recession in order to devalue capital and cheapen investment. (This is best illustrated by US money market funds — money capital sitting idle, waiting for profitable opportunities in production to turn up. Note the steepening trends and peaks before and around the 2001, 2008 and 2020 recessions — and now.) But while the money supply and the Federal Reserve’s balance sheet both started to decline after 2022, both are now rising again, signalling a new round of accumulation and devaluation of money (which will result in a concentration of capital as private enterprise that goes bankrupt is bought up on the cheap by those sitting on larger money reserves).

Another explosion in the money supply is not only going to devalue money but rising bankruptcies will curtail supply and create inflationary pressures, at least until demand falls as a result of job losses and falling incomes (although capital investment demand from the remaining capitalists will rise for a while before cuts to production are made to raise prices).

Other reasons point to the US being on course for hyperinflation. In 2008 and 2020, investors fled the stock market to US 10-year Treasuries, pushing up the price of those treasuries and boosting the US state’s revenues — upon which capital is increasingly dependent — bringing down the cost of long-term borrowing, including for the US state.

In 2025, however, the spiralling US debt — exploding from $23 trillion in 2020 to $36 trillion in 2025 — has seen the cost of paying interest on debt (after paying the debt itself) soar to 14% of the US state’s budget, up from 6% in 2010. It is the state’s fastest growing area of spending and only social security now takes up a bigger share. (N.B. Defense in that time has fallen from 20% to 13%, despite its enormous absolute growth.) As revenue intake falls, state spending rises as the state has to issue more debt to make up the shortfall.

Lending to the US state, especially in a crisis, is therefore looking less and less attractive, as confidence in the state’s ability to repay the debt (and with interest) is falling (exacerbated by the added uncertainty generated by the Trump administration). Investors are instead more likely to flee to gold and Bitcoin — or debt from other countries. The interest rate on the 10-year Treasury, closely linked to long-term borrowing and mortgage rates, is therefore tending to rise — both because the risk of lending has risen and to make it more attractive to buy. Trump’s administration likely expected the 10y yield to fall after his tariff hikes and in the first 24 hours it did, by 0.1%. It then rose, however, from 3.99% on the 4th of April (and 3.6% in September 2024) to 4.35% at the start of May.

The government is having to take out new, bigger loans at higher rates to pay off old debt. The average interest rate on repaid government debt was 1.772% in 2020 but has now risen to 3.284%. Rates will tend to go higher and higher and the tax base will collapse.

This trend is to be expected. When surplus capital reaches a point at which economic/GDP growth flatlines, the central bank lowers its overnight lending rate, incentivising banks to search for higher rates on the market. Doing so staves off or shortens a recession, but also induces it by catalysing borrowing, lending and investment, along with the process of devaluation and capital concentration.

The Federal Reserve’s rate landed at 0% for the first time ever in 2008 and stayed there until 2016 before steadily rising to 2.4% in June 2019 and then falling back to 0% at the start of 2020. On average since WWII, ending a recession requires a 6% rate cut, though. The short-term rate cut in 2020 barely interrupted the rise of surplus capital.

(Banks hit out at any prospect of negative interest rates — even declaring them to be ‘the path to Soviet-style banking’ — saying it would slash their earnings and limit their ability to absorb loan losses. Bank of America analysts estimated that a Bank of England rate cut to just (minus) -0.25% would depress the banking sector’s average return on equity into low-to-mid single digits and take 50% off Barclays’ domestic pre-tax profit, rising to more than 70% for RBS and Virgin Money.)

Central banks are stuck between a rock and a hard place. Rates could only really go back up and with 40-year high inflation in 2022 , as a result of investment demand rising amid broken supply chains after the pandemic and lockdowns, the Fed rose its interest rate in order to stabilise the currency, tackle inflation, and give banks somewhere to accrue interest they couldn’t find on the market.

The 50-year trend of falling interest rates is likely over, barring a plunge into negative rates amid hyperdeflation, which will follow hyperinflation. Borrowing rates of 0% likely represent the historical limit of expanding commodity accumulation, at least in the US, UK, Japan, France and Germany. Rates will therefore continue to tend to rise and commodity production will tend to contract, with accumulation therefore increasingly dependent on centralisation (bleeding smaller or failing competitors and the public dry).

The Fed’s small rate cut in 2024 unusually pushed market rates up because inflation rose. Fed rate cuts back towards zero, designed to end a recession (and cheapen borrowing exacerbated by any corporate tax cuts) which may have already started — US GDP shrank by 0.3% in 2025 Q1 and oil prices fell 20%, likely leading to an increase in imported oil as domestic producers cut production — would accelerate the devaluation of the dollar, appreciating import costs and inspiring even higher bond sales and interest rates, likely sparking very high, perhaps even hyperinflation.

With the US dollar being by far the main global reserve currency, the threat of worldwide hyperinflation therefore looms. But far from being anyone’s direct fault — Trump’s or the Fed’s — this likelihood fits historically and logically with the devaluation of the currency over the past century, as capital accumulation has compounded absolutely. All fiat currencies will likely collapse against precious metals.

As mentioned, central banks are buying gold as collateral (making their debt more appealing) at unprecedented levels. The price of gold shot up to $2,500 per ounce in April — up from $1,500 in July 2023; $740 in September 2015; and $230 in May 2005.

Historically, rates of interest — a parasitic form of profit, siphoned off commodity production — have tended ever-closer towards zero, again because of rising productivity and accumulation. To ‘keep them at zero’ for good, we need to abolish interest by recognising that rising productivity historically demands the end of private capital, commodification and profit.

The socialist necessity

As McKinsey Global Institute director James Manyika said in June 2017, “Find a factory anywhere in the world built in the past five years — not many people work there.”

The automation revolution is making capitalism obsolete. Primarily, the source of value and profit is being abolished. Wage labour is becoming obsolete, meaning — as a secondary effect — increasingly few people will have the money to buy the commodities capitalists need to sell in order to realise the value created at the point of production as profit.

To recap, the commodity is both a use value — a thing with a specific utility — and an exchange value. As more of the former are produced, the latter withers away, making a transition to a mode of production based solely on use value increasingly necessary.

Socialism, a publicly owned economy — whereby social accumulation usurps capital accumulation — enables production on a break-even basis, rather than zero-sum profit (the theft of labour time), thereby abolishing inherent and inevitable recessions and mass unemployment.

The required change in the mode of production then, in theory, is simple: nationalise/socialise the means of production, replace for-profit commodity-production with break-even utility-production; and peg the ‘currency’ value to labour time.

Non-transferable labour credits

In Critique of the Gotha Programme, Marx explains that under socialism workers would be paid in vouchers or certificates and then draw down entitlements (use them to purchase and consume goods). Such vouchers, or labour credits, would be non-transferable, cancelled once spent, like train tickets. So while socialism would incentivise and reward work, meaning absolute income equality is not feasible, it would also prevent most wealth from accumulating in the hands of a few, tending to keep inequality to a strict minimum. Without class, economic exploitation would be abolished and labour power decommodified. ‘Exchange-value’ still ‘exists’ — the price of goods still equate to labour time (and more explicitly, in fact) which continues to diminish as automated production expands and improves — but it is qualitatively different, now based on use-value instead of surplus-value.

With Britain’s cash economy already “close to collapse”, according to the Access to Cash Review, it is therefore time to transition to a digital voucher/credit system. 6.5 hours of work, for example, will be rewarded with 6.5 digital labour credits — which will buy, all else being equal, goods that collectively took six and a half hours to produce. (Money will still be used while the transition to public ownership is being made and while imports are still brought in from capitalist nations, probably requiring the implementation of dual currencies. Money can also be used as an accounting index without being used for exchange, so paper money could still be used while the digital infrastructure is being transformed, enabling access to ‘currency’ for all during the transition.)

In Towards A New Socialism, Paul Cockshott and Allin Cottrell argue convincingly for such a system, but with an inbuilt grading structure to incentivise the type of work (night shifts, for example) and productivity rates.

This system also makes budgeting far more intelligible, enabling a much more informed electorate, who could vote on how much should be spent on each department of state spending. Cockshott and Cottrell argue for a flat rate tax (say 40% of every 1.0 labour credit earned) to fund state expenditure on health care, education, infrastructure, productive expansion, and so on. (We might need to make tax rates more progressive to start with and work towards a flat rate.)

Consumer goods prices will be adjusted by a marketing algorithm according to supply and demand (and shrinking labour content, given the ongoing transition to full automation) to ensure price stability. The price of a product rises against excess demand; while the planners order its increased production; and vice-versa.

Cockshott explains:

“Suppose a radio requires 10 hours of labor. It will then be marked with a labor value of 10 hours, but if an excess demand emerges, the price will be raised so as to eliminate the excess demand. Suppose this price happens to be 12 labor tokens. The radio then has a price to labor-value ratio of 1.2. Planners (or their computers) record this ratio for each consumer good. The ratio will vary from product to product, sometimes around 1.0, sometimes above (if the product is in strong demand), and sometimes below (if the product is relatively unpopular). The planners then follow this rule: Increase the target output of goods with a ratio in excess of 1.0, and reduce it for those with a ratio less than 1.0.

“The point is that these ratios provide a measure of the effectiveness of social labor in meeting consumers’ needs (production of `use-value,’ in Marx’s terminology) across the different industries. If a product has a ratio of market-clearing price to labor-value above 1.0, this indicates that people are willing to spend more labor tokens on the item (i.e. work more hours to acquire it) than the labor time required to produce it. But this in turn indicates that the labor devoted to producing this product is of above-average `social effectiveness.’ Conversely, if the market-clearing price falls below the labor-value, that tells us that consumers do not `value’ the product at its full value: labor devoted to this good is of below-average effectiveness. Parity, or a ratio of 1.0, is an equilibrium condition: in this case consumers ‘value’ the product, in terms of their own labor time, at just what it costs society to produce it. This means that the objective of socialist retail markets should be to run at break even level, making neither a profit nor a loss; the goods being sold off cheap compensate for those sold at a premium.”

A central marketing authority — initially selected by the party but later, as the counter-revolution is defeated and living standards rise, elected by the public — will regulate the standards of consumer goods, with enterprises motivated to make attractive products by the raised market prices. The progressive increase in free time for workers as production becomes more efficient will act as an incentive to both work and improve efficiency. In the long run, Marx anticipates free time becoming the measure of social wealth, with more and more free time increasingly unleashing human creativity and reviving independent craftsmanship.

Revolutionary pedagogy

Even under capitalism, fixing currency to labour is one of the most important reforms socialists and workers should pursue. In Arguments for Socialism, Cockshott argues for such a reform in Venezuela, where the democratic socialist PSUV government (which seeks a path to socialism via bourgeois elections) has, having remained in government for 20 years (thanks mainly to strong support from the armed forces), brought about a de facto situation of dual power. (Around 70–80% of the economy remains privately-owned and so the economy remains capitalist, although many working class gains that socialists should support have been made.) He argues that the PSUV government should fix the value of the Bolivar to labour, rather than the cost of living, for two reasons (p. 161):

• As labour productivity rises, a Bolivar fixed in terms of hours of labour will be able to buy more each year, cheapening the cost of living.
• Once the value of the Bolivar has stabilised in terms of value of labour, then the labour value of Bolivar notes should be printed on them in hours and minutes. This step would be an act of revolutionary pedagogy, since it would reveal clearly to the workers how they are cheated by their capitalist employer. Suppose a worker puts in a working week of 45 hours and gets back Bolivars and sees that the hours printed on them only amount to 15 hours. Then she will become aware that she is being cheated out of 30 hours each week. This will act to raise the socialist consciousness of the people, and create favourable public opinion for other socialist measures.

Pegging currency to labour time would then have something of a They Live sunglasses effect.

Cockshott then advocates for an accounting reform (p162):

“All firms have currently to prepare money accounts. The government should make it a condition of their accounts being approved for auditing that they also produce labour time accounts, and that they mark all products with their labour content. Initially firms need not be legally obligated to sell their commodities at their true values. They could attempt to sell them for a price that is higher or lower than the true value. But since the consumer can now see when they are being overcharged, consumers will tend to avoid companies that sell goods at above their true value. This will put psychological and consumer pressure on companies that are overcharging. This, too, will be an act of socialist mass pedogogy, raising consciousness.

“In the first few months before all goods have their labour values printed on their price tags, firms will have to impute labour values to the goods they purchase using the printed exchange rate between Bolivars and labour hours. They will add to the labour value of their inputs, the number of hours of work that are performed by their employees to get a labour value for the final product.

“The government should also move towards having a dual system of national accounts, labour accounts alongside money accounts because at the level of national economic policy there are many issues on which labour accounts would be more informative than money accounts. Money accounts hide the fact that what government economic policy really does is reallocate society’s labour.”

Cockshott also rightly says that recognition of Marx’s labour theory of value, which has been proven by statistical mechanics (with higher labour-intensity producing higher rates of profit) should be incorporated in law (pp162–3).

“The law should recognise that [commodified] labour [time] is the sole source of value and that in consequence workers, or their unions, will have a claim in law against their employers if they are paid less than the full value of their labour.

“If we consider the previous measures and the revolutionary pedagogy that would follow from them it should be relatively easy to pass a referendum on such a law. Following such a law being passed, there would be a huge wave of worker activism as workers and unions sought to end the cheating and to see which day and their ancestors had been subjected. It would also bring about a very large increase in real wages, cementing support for the socialist government. The employing class on the other hand would see sharp falls in their unearned incomes. Employers who were active factory managers would of course still be legally entitled to be paid for the hours that they put in managing the firm, just like any other employee.”

In summary, pegging currency to labour should be near the top of the list of socialist and working class demands, but in historical terms, it is now also — for the first time given the senility of capitalism and the advanced development of the productive forces — becoming an economic necessity, along with public ownership of the means of production.

Ted Reese is author of Socialism or Extinction: Climate, Automation and War in the Final Capitalist Breakdown